GO
Loading...

California Screamin': We Need Gov't Loan

Friday, 3 Oct 2008 | 11:43 AM ET

That's not Wall Street! Here's the headline of the day: California might need emergency loan of $7 billion--unable to access routine short-term loans.

Stock traders are more confident the TARP bill will pass the House today than they were a couple days ago, exactly because of headlines like the one above. Even Calif. Gov. Arnold Schwarzenegger is warning that the state is running out of money. The credit crisis is spreading, and that reality is sinking in.

    • House Debating Bailout Amid Hopes It Will Pass

This makes the Citi/Wells Fargo/Wachovia dance very interesting. As issuance of short-term commercial paper declines substantially, commercial banks are going to be forced to increase their reliance on deposits.

That means those deposits will have real value now, and Wachovia'svalue has increased in the past week. This food fight for Wachovia (and other banks that have relatively healthy deposits) is not over.

Finally, imagine the frustration of being a risk arbitrage trader. The Wells Fargo/Wachovia was a beautiful opportunity for them (go long Wachovia, short Wells Fargo) but since you can't short Wells Fargo, you can't do arbitrage.

    • Governor Arnold To the Fed: I'll Be (In The) Black

_____________________________
New from CNBC.com:

- The Dow 30 at a Glance


Questions? Comments? tradertalk@cnbc.com

  Price   Change %Change
WFC
---
C
---

Featured

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street